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Fitch Ratings Warns CalPERS Board Action on Pensionable Compensation is a “Step Backward”

August 29, 2014
Fitch Ratings, a global credit rating research firm, last week raised questions on whether the CalPERS Board of Administration decision to approve new regulations for special pay categories weakens the sustainability of California’s pension system. 
 
The questions came in the form of report issued by the company on Aug. 22, two days after the CalPERS board took action. The regulations contain approximately 100 categories of “special pay” that would, in addition to base or normal pay, be defined as pensionable compensation. The list is virtually identical to the categories of special pay used for pre-PEPRA (or “classic” CalPERS employees) despite the clear direction in PEPRA that “ad hoc” categories of pay should not be pensionable.
 
Fitch cautioned that CalPERS action conflicts with PEPRA and will cause pension costs to rise for public employers. “The expanded definition of pensionable compensation exposes public employers to higher pension liabilities and contribution expenses, and appears to be a step backward from recent reforms.”
 
Fitch further warned: “The magnitude of impact from this decision is not yet clear, but it raises more questions about the sustainability of California’s pension reform efforts, which continue to face legal and institutional challenges. Particularly worrisome to Fitch is the absence of detailed information on the analysis of its projected costs.”
 
The League on Aug. 22, called on CalPERS to reexamine whether the approved special pay categories should remain pensionable under PEPRA. The 100 categories warrant a review following PEPRA because they have remained the same since 1993. The League submitted written comments on the proposed regulations in June almost two months prior to the Aug. 19 hearing of the CalPERS Pension and Benefits Committee.


 
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